Robo-advisors and automated wealth management
For individual investors like you and me, perhaps the largest impact of AI is on automated wealth management. The robo-advisor industry has exploded over the past few years, and AI is accelerating the adoption of automated investing.
If you aren’t familiar with the term, a robo-advisor is a platform that assesses a client’s risk tolerance, investment goals, and other factors, and constructs and maintains an appropriate investment portfolio. AI-powered robo-advisors manage $1.26 trillion of investor assets, and with millennials and Gen Z investors accounting for three-fourths of robo-advisory users, and many in this group entering their prime earning years, it’s likely this will grow rapidly in the coming years.
One big way AI is disrupting investing is by supercharging investment analysis. It can spot and analyze industry trends, process earnings reports, and assess economic indicators. Automated investment platforms can quickly run thousands of projections and scenarios, allowing for extremely personalized investment strategies tailored to individual risk tolerance and preferences.
Finally, AI algorithms can continuously monitor portfolios to ensure they remain aligned with their owners’ investment objectives. They can automate rebalancing to ensure asset allocations remain at the desired levels and perform sophisticated tax-loss harvesting to identify tax-saving opportunities far more often than a human advisor could.
AI and cost effectiveness
Artificial intelligence allows banks and other financial institutions that offer investment services to operate more efficiently. In fact, it is estimated that AI could deliver up to 30% cost reduction across the entire banking industry as automation scales. For example, AI-powered loan processing results in a 70% improvement in processing times and the need for far fewer human loan processors.
On the topic of automated investing, robo-advisors have long been cheaper than traditional financial advisors, and AI should further reduce fees in the coming years. Already, most AI-powered robo-advisors charge management fees that are less than half those of the typical human advisor.
The average human investment advisor charges 1.02% of assets under management annually, compared with between 0.2% and 0.35% for the typical robo-advisor.
AI-first platforms can further reduce costs. For example, Range offers both human financial planners and a sophisticated AI chatbot, Rai, which the company says can answer 95% of CFP-style questions correctly and is available 24/7 to clients. Range offers end-to-end wealth management for a flat annual fee ranging from $2,950 to $9,950, which could be a bargain for high-net-worth individuals -- especially considering it includes access to human financial planners whenever they’re needed.
Not only will advancements in AI allow them to keep lowering costs, but the capabilities will continue to improve to the point where robo-advisors can do almost anything a human financial advisor can. In fact, Range’s CEO, Fahad Hassan, believes that AI will eventually largely replace humans in financial advice.
You can book a complimentary demo with Range and discover how you can get personalized wealth management for investing, taxes, and more -- all for one flat annual fee.
